Obama spreads XL jitters

The Canadian government has suddenly turned edgy about hopes of seeing TransCanada’s Keystone XL pipeline clearing its final regulatory hurdle and spreading fresh optimism among Alberta oil sands and Bakken producers.

Now that Nebraska Gov. Dave Heineman has sent a letter to President Barack Obama endorsing TransCanada’s proposed rerouting of the pipeline to avoid the state’s ecologically sensitive Sandhills region, the final verdict rests with the U.S. State Department which must issue a Presidential Permit for any pipeline crossing the Canada-U.S. border.

At the same time a letter signed by 53 U.S. Senators said Heineman’s approval put the long-delayed project squarely in Obama’s hands and urged the president to “choose jobs, economic development and American energy security,” noting that Keystone XL had “gone through the most exhaustive environmental scrutiny of any pipeline” in U.S. history.

Gloomy outlook

However, what should have been the most welcome development for the Canadian government in more than four years of raging battles over the project and its own desire to open up a huge new market on the U.S. Gulf Coast for oil sands crude has instead turned gloomy.

Finance Minister Jim Flaherty, who seldom comments on natural resource matters, told reporters Jan. 27 at the World Economic Forum in Davos, Switzerland, that Obama’s inaugural speech to launch his second term does not bode well for the pipeline.

By pledging to combat climate change, emphasizing that a “failure to do so would betray our children and future generations,” and insisting the U.S. should be a leader in sustainable energy, Obama had effectively eroded the outlook for Keystone XL, Flaherty suggested.

“I had reason for optimism before the election that the president would approve (the pipeline) were he re-elected, but his (inaugural) speech was not encouraging,” he said.

If the 830,000 barrels per day XL pipeline is scuttled it removes the prospect of including about 100,000 bpd of Bakken crude on the system to Cushing, Okla., and accessing TransCanada’s Gulf Coast project to carry 700,000 bpd from Cushing to Nederland, Texas, starting late this year.

Even if XL is sidelined by Obama, Flaherty said Canada “will go wherever we have to go. ... We’re going to create markets for Canadian commodities. And we’ll do it quickly. We have major projects right now on our agenda and we will encourage them.”

Special promise for Bakken

TransCanada Chief Executive Officer Russ Girling, speaking to an investor conference in Whistler, British Columbia, on Jan. 24, noted that XL holds special promise for Bakken crude “which we will be able to attach to it quite readily and quite quickly.”

He said 100 percent of the capacity on the Keystone system has already sold out and “if we get the go ahead (for XL) I think we would very quickly move to the contractual underpinning” to debottleneck the movement of crude in the U.S.

Girling said that could include delivering crude to the U.S. and Canadian East Coasts from the oil sands and the Bakken to replace 1.5 million to 2 million bpd of imported crude.

Enbridge Chief Executive Officer Al Monaco, speaking at the same Whistler conference, said his company could make an announcement this year on its C$6 billion market access program for light oil from Western Canada and the Bakken to several eastern points in North America, along with expanding to 850,000 bpd from 400,000 bpd of the Seaway pipeline from Cushing to Port Arthur, Texas, and the completion of a 450,000 bpd Spearhead expansion from Flanagan, Ill., to Cushing.

U.S. Sens. John Hoeven, N.D., and Max Baucus, Mont., garnered the support of a bipartisan group of 53 U.S. senators in signing a Jan. 23 letter to President Obama urging the president to expedite approval of the Keystone XL pipeline on the heels of Nebraska Gov. Dave Heineman’s recent endorsement of the pipeline following a favorable environmental review of the pipeline’s revised route through that state.

“Nebraska recently approved a new Keystone XL Pipeline route. Four and a half years after TransCanada first applied for a Presidential Permit, and a year since you denied their original request, the project still awaits your approval,” began the letter, signed by 44 Republicans and nine Democrats. “Nebraska has now addressed the outstanding concerns you raised when you denied the permit, and we therefore urge you to finish expeditiously the review process and approve the pipeline.”

Because the project crosses an international border, the State Department has to approve the project, and the Obama administration denied approval of the pipeline over environmental concerns associated with the pipelines initial route through the Sand Hills region of Nebraska.

But a new route has been selected and the Nebraska Department of Environmental Quality determined the new route poses minimal environmental impact.

With Heineman’s stamp of approval, the group of senators wants the president to quickly approve the pipeline.

“Some constituencies have called on you to deny the pipeline and the jobs and energy security associated with it,” the letter continued. “Because the pipeline has gone through the most exhaustive environmental scrutiny of any pipeline in the history of this country, and you already determined that oil from Canada is in the national interest, there is no reason to deny or further delay this long-studied project.”

North Dakota’s U.S. Sen. Heidi Heitkamp also signed the letter. Montana U.S. Sen. Jon Tester’s signature was not on the letter, but Tester is on record as supporting the project.